DOJ to Focus on Individual Accountability for Corporate Misconduct

In her September 9, 2015, memorandum –generally known as the “Yates Memo” - Deputy Attorney General Sally Yates stresses the DOJ’s intent to focus on individual culpability in corporate misconduct investigations and prosecutions.  And in both the Memo, and Yates’ November 16, 2015 speech at the American Bank Association and American Bar Association Money Laundering Enforcement Conference, Yates states the obvious: corporations act through individuals and by placing a higher focus on individual actors, corporate misconduct is more effectively deterred.

The Yates Memo lays out six changes for corporate misconduct investigations: (1) in order to qualify for any cooperation credit, corporations must provide the DOJ all relevant facts relating to individuals responsible for misconduct; (2) criminal and civil corporate investigations should focus on individuals from the beginning; (3) criminal and civil attorneys investigating corporate misconduct should openly communicate; (4) except in rare cases, the DOJ will not terminate individual investigations when resolving corporate cases; (5) corporate cases should not be resolved without a clear plan for related individual cases; and (6) civil attorneys should not focus solely on an individual’s ability to pay when considering whether the bring a civil action against the individual.

Of all the factors listed above, in her November 16 speech, Yates said that cooperation credit has received the most attention.  As the memo states: “In order for a company to receive any consideration for cooperation under the Principles of Federal Prosecution of Business Organizations, the company must completely disclose to the Department all relevant facts about individual misconduct.”  Although this concept is nothing new, the policy consequences have changed.  Previously, the DOJ provided cooperation credit on a sliding scale.  Under the new policy, credit is unavailable until and unless all information on an individual’s involvement in wrongdoing is provided.  Even in that instance, a company will only be eligible for consideration for cooperation credit.  The conflict this creates in the corporate hierarchy is clear.  If an executive is personally liable, as a decision-maker, the executive will not be willing to implicate themselves.  On the other hand, if a lower-level employee comes forth with facts implicating an executive, that individual could face various repercussions.  In any instance, if a corporation or individual provides all information and receives little cooperation credit, the incentive dissolves.  Taking the cost of investigating and providing these facts also limits the effects of this policy. Yates acknowledges these issues, but believes they are over-emphasized.

The next four factors reiterate the focus of the Memo – individual accountability in both civil and criminal forums and the importance and practicality of communication and cooperation between enforcement attorneys.  The Yates Memo states that individual accountability should be the focus from the start of the investigation.  Again, as a corporation only acts through individuals, the most effective means of prosecuting corporate wrongdoing and deterring future misconduct, is to hold specific bad actors accountable.  Utilizing communication and cooperation between civil and criminal attorneys, ensures that all avenues and remedies are considered. 

Finally, the Yates Memo states that an individual’s ability to pay should not be the determinative factor in civil enforcement.  The investigation should also consider whether conduct is actionable, whether evidence is admissible to obtain a judgment, whether pursuit of judgment constitutes an important federal interest, past history and circumstances, the needs of the communities served, and federal resources and priorities.  In short, any prosecution, whether civil or criminal, should further the DOJ’s interest in minimizing corporate fraud and losses to the public fisc.

In her speech, Yates reiterated her point in the policy articulated in the memo: “Our mission is not to recover the largest amount of money from the greatest number of corporations; our job is to seek accountability from those who break our laws and victimize our citizens.”  Yates also recognized the importance of public trust and rooting out misconduct to hold those accountable for their wrongdoings.  Whether the changes in policy will lead to more individual convictions or pleas is an issue of time.